The Fundamentals of Business Finance

Finance is a broad term for things about the science of investments, the making of loans and other financial arrangements, and the control of monies. In particular, it covers the issues of why and how an individual, organization or state get the money necessary to operate their business or gain the income from it-called capital within the business context. The field itself was born out of the sciences of political economy and the philosophy of free trade. There are many different schools of thought in finance, including those that disagree on the definition of finance itself and those that support its use as a science.

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The Fundamentals of Business Finance

Finance is a broad term for things about the science of investments, the making of loans and other financial arrangements, and the control of monies. In particular, it covers the issues of why and how an individual, organization or state get the money necessary to operate their business or gain the income from it-called capital within the business context. The field itself was born out of the sciences of political economy and the philosophy of free trade. There are many different schools of thought in finance, including those that disagree on the definition of finance itself and those that support its use as a science.

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A major portion of banking involves the borrowing of funds. Typically, banks provide loans and use capital provided by customers (a borrower). They do not lend money directly, but rather to obtain a loan from a financial institution and use the funds to make lending and other financial decisions for a business or organization. A major function of banking therefore is the provision of finance.

A majority of financial institutions in modern society are large, international banks. These large financial institutions generally engage in direct lending to businesses and organizations, creating risks for them in the process due to the high level of capital that they typically hold. For this reason, small businesses typically have to seek financing from either financial institutions or private investors through a number of different channels. This includes borrowing money from family, friends and relatives, obtaining small business loans from banks and other financial institutions, or securing small business investment capital from private investors.

As part of the process of obtaining funds from other sources, businesses use budgeting and financial practices known as cost accounting. In fact, these three techniques are often used together. A company’s financial records, including its balance sheet, income statement, and statement of cash flows, are prepared by a team of financial experts under the supervision of an accountant. Within a firm, various departmental heads are responsible for the preparation of these financial statements.

Broad Term Finance The second technique used in small businesses is known as broad term finance. This technique of finance is used to acquire short-term funds that are needed in a hurry. Broad term finance generally comes to be used when a company needs additional cash for one of its important activities such as expansion, growth, new product development, or debt repayment. Broad term financing can also refer to the strategy that a company employs to deal with a temporary rise or fall in its market share. It can refer to long-term strategies, to the buying and selling of securities, or to the borrowing of external funds.

Personal finance The third technique used in the finance field includes the use of assets or savings as sources of finance. Individuals usually save their income by means of a salary deduction, by making use of their home as collateral for loans, by making use of their 401(k) plans, by enrolling in a plan like Social Security, or by other similar methods. Since individuals have different goals and consequently different methods of saving, individual finance is not a precise science.

Commercial Finance The fourth technique of financial management used in business concerns investors. The word ‘investor’ refers to people who buy businesses. Most business financing techniques to help small businesses obtain capital from individuals, banks, or other companies. These investors usually act as financial managers of the enterprise.

Short Term Finance The fifth and final technique of business financial management is short term finance. Short term finance refers to financing a specific business activity for a short period of time. An example of a short term finance is buying equipment used to manufacture a particular product. Cash flow generated during this time is used to conduct business.

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